Here's What We Like About Daido Steel's (TSE:5471) Upcoming Dividend
Daido Steel Co., Ltd. (TSE:5471) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be two business days before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Daido Steel's shares on or after the 29th of September, you won't be eligible to receive the dividend, when it is paid on the 7th of December.
The company's next dividend payment will be JP¥24.00 per share, on the back of last year when the company paid a total of JP¥52.00 to shareholders. Based on the last year's worth of payments, Daido Steel stock has a trailing yield of around 2.1% on the current share price of JP¥2451.50. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Daido Steel paying out a modest 28% of its earnings. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 72% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Daido Steel's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for Daido Steel
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Daido Steel has grown its earnings rapidly, up 53% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Daido Steel has delivered an average of 10% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Daido Steel worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Daido Steel paid out less than half its earnings and a bit over half its free cash flow. There's a lot to like about Daido Steel, and we would prioritise taking a closer look at it.
In light of that, while Daido Steel has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 2 warning signs for Daido Steel you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.